Critical IMF says no date for next Hungary aid talks

By Gergely Szakacs

3 Min Read

The IMF's Mission Chief for Hungary, Thanos Arvanitis (L) and the Fund's Representative in Hungary Iryna Ivaschenko walk in the streets of Budapest after leaving a meeting at the National Bank of Hungary, July 17, 2012.Bernadett Szabo

BUDAPEST (Reuters) - The International Monetary Fund has not fixed a date for its next round of aid talks with Hungary, the IMF's representative in Hungary said on Saturday, saying that Budapest's latest tax measures ran counter to its recommendations.

Hungary on Friday scrambled to allay concerns that near year-long talks with the IMF were close to breaking down after a website said the IMF would not return to Budapest unless the government changed tack.

Central Europe's most indebted nation, Hungary needs a financing backstop from the IMF in order to stabilize its shrinking economy.

"There are no dates yet for the negotiation mission to return to Budapest," the IMF's representative in Hungary, Iryna Ivaschenko, told Reuters in an emailed response to questions.

Her remarks suggested that a rift between the IMF and the government on how best to put the country's finances on a sustainable footing is as wide as at any point during Budapest's 11-month-old bid for a safety net.

The IMF and the European Union, which led a 20 billion euro rescue of Hungary in 2008, held a first leg of loan talks in Budapest in July.

But Prime Minister Viktor Orban's government announced a swathe of tax rises last week as it struggled to keep the deficit at the EU's 3 percent limit, a move that ran counter to EU and IMF advice for a more balanced fiscal adjustment.

The European Commission is due to unveil its assessment of Hungary's latest measures on November 7, which could also form the basis for a decision on whether to strip the country of millions of euros in EU funds for further budgetary slippage.

Often at loggerheads with the EU over his unorthodox measures to tackle a chronic budget deficit, Orban reneged on a pledge to halve Europe's highest bank tax next year and went on to double a planned tax on financial transactions.

"As we stated before, we believe that the focus of fiscal adjustment should be on achieving a more balanced consolidation, shifting away from ad hoc tax measures," the IMF's Ivaschenko said.

"This will help reduce the budget deficit in a sustainable manner and, when combined with structural reforms, generate higher and more inclusive growth. Several of the measures announced last week are not aligned with these objectives."

Orban's economic policies have unsettled investors over the last two years, but investors have recently appeared to give the government the benefit of the doubt. The forint and bonds have rallied this month as monetary easing in the United States and the euro zone has fuelled appetite for riskier assets.

But economists, most of whom believed in January when the forint plumbed record lows that an IMF deal was inevitable, now say there is only a 50-50 percent chance that an agreement will be reached, and even the most optimistic do not expect a deal before 2013.